Not economies in recession, economics; the science that its proponets are calling ‘dismal’ to the ‘uninitiated’. A series of articles published by The Economist has brought the discussion of the death of modern economic theory to blogs and armchairs.
OF ALL the economic bubbles that have been pricked, few have burst more spectacularly than the reputation of economics itself. A few years ago, the dismal science was being acclaimed as a way of explaining ever more forms of human behaviour, from drug-dealing to sumo-wrestling. Wall Street ransacked the best universities for game theorists and options modellers. And on the public stage, economists were seen as far more trustworthy than politicians. John McCain joked that Alan Greenspan, then chairman of the Federal Reserve, was so indispensable that if he died, the president should “prop him up and put a pair of dark glasses on him.”
In the wake of the biggest economic calamity in 80 years that reputation has taken a beating. In the public mind an arrogant profession has been humbled. Though economists are still at the centre of the policy debate—think of Ben Bernanke or Larry Summers in America or Mervyn King in Britain—their pronouncements are viewed with more scepticism than before. The profession itself is suffering from guilt and rancour. In a recent lecture, Paul Krugman, winner of the Nobel prize in economics in 2008, argued that much of the past 30 years of macroeconomics was “spectacularly useless at best, and positively harmful at worst.” Barry Eichengreen, a prominent American economic historian, says the crisis has “cast into doubt much of what we thought we knew about economics.”
And in defence
In its crudest form—the idea that economics as a whole is discredited—the current backlash has gone far too far. If ignorance allowed investors and politicians to exaggerate the virtues of economics, it now blinds them to its benefits. Economics is less a slavish creed than a prism through which to understand the world. It is a broad canon, stretching from theories to explain how prices are determined to how economies grow. Much of that body of knowledge has no link to the financial crisis and remains as useful as ever.
A broad cannon, a prism to look at the world… Yes well, it’s hardly a specific science is it? if there was a problem with economics that led to the current crisis, it was the complete trust in certain branches of economic theory, in complete ignorance of other similarly viable economic barnches of theory.
This ‘dismal science’ primarily studies human behavior, and there is nothing more complex and unpredictable. Psychology is also a science that studies human behavior; on a much more micro level. And it still can’t figure out the complexity of our needs and wants.
Economics relies on certain broad based assumptions to carry out analyses and theorize on a macro level. I.e. on the overall impact to the world from the behavior of its people, and this is a complex task. It’s something that is impossible for one person to fully grasp or understand, leading to many different viewpoints, theories, models and schools of thought on how the world works.
Nobody understands how the world works. Nobody knows the full consequences of largescale financial decisions for example. Least of all the economists themselves.
The world messed up. Again. And now it looking for something to blame. They’ve put the blame already on the banks, rich CEOs, rating agencies, governments and even China. This is just normal human behavior IMO.